Strong fundamental factors create a period of stability in the UK gas market

30 March 2023

Gas Market

Momentum in the UK gas market was flat yesterday, as NBP gas contracts are experiencing a period of stability, with no notable volatility in recent days due to the presence of strong fundamental factors. LNG supplies are plentiful, and the aggregated European storage levels is at 50% ahead of the summer injection period. It is important to note, however, that there is still potential for significant price swings in European gas markets. This could occur if there is an increase in Asian demand for LNG and European industrial demand reduction ease, while gas prices remain at current levels. The front month contract peaked at 112.32p per therm yesterday and eventually settled at 106.63p while Summer 23 reached a high of 113p before scaling back to 108.08p per therm.  Contracts for the remaining month of the year lost 0.16p per therm on average yesterday.

Power Market

Wednesday’s momentum in the GB baseload power futures market was dull as contracts traded sideways. Limited movement in the UK gas market coupled with a lack of strong directional signals in the EUA carbon market encouraged the muted sentiment. The front month contract April shed £0.35/MWh to settle at £110.50/MWh while Summer 23 shed £0.50 to close at £116.25/MWh. The GB baseload day ahead contract traded lower for five consecutive sessions yesterday, settling at £103.00/MWh down £2.94/MWh on the day. It has traded at an average of £114.18/MWh in March £22.91/MWh lower month on month.

 Oil Market

During yesterday’s session, Brent crude oil prices reached their highest level since March 13th, before falling back to settle $0.37 lower at $78.28. The early price spike was attributed to the suspension of over 450,000 barrels per day in Iraq, which raised concerns over supply tightening. The halt accounts for half a percent of global oil supplies. Furthermore, the upward momentum in the early hours of trading was supported by a drop in US crude stocks while this was counteracted by lower than targeted cuts to Russian crude products, which fell by only 300,000 barrels per day rather than the target of 500,000 bpd. The muted movement yesterday, may indicate the market has stabilized following on from a turbulent month where oil reached a 15-month low on March 17th at $72.97 a barrel.

Markets this morning

NBP gas prices have opened flat once again this morning, signally another day of market stability. April the front month contract last traded at 106.12p while Summer 23 last traded at 108.85p, up 0.76 pence per therm from yesterday’s settlement. Movement in the prompt market is also muted as the UK system opened balanced with demand forecast at 281MCM, which is being met by strong Norwegian flows and UK LNG sendout. Brent crude front month contract last traded at $78.86 a barrel, up $0.58 from yesterday’s close. The oil market is expected to keep a close eye on developments on Iraqi oil exports.
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